QFS Ausralia Pty Ltd v Bailey & Anor No. Scgrg-97-812 Judgment No. S427
[1999] SASC 427
•8 October 1999
QFS AUSTRALIA PTY LTD v BAILEY & PARTS MASTERS PTY LTD
[1999] SASC 427
Civil
WICKS J
The Litigation
In this matter, QFS Australia Pty Ltd (“QFS”) commenced an action against Anthony Ernest Bailey (“Mr Bailey”) and Parts Masters Pty Ltd (“Parts Masters”). In the statement of claim in the action, QFS claimed it carried on business as a wholesaler of forklift spare parts. Mr Bailey and his wife Mary (“Mrs Bailey”) were at all material times the directors of Parts Masters. It is alleged that on 29 October 1993, Mr Branko Brikic, a director of QFS and Mr Bailey became directors of a company known as Joycourt Pty Ltd trading under the style or trade name of “QFS Forklift Spares”. It is alleged in the statement of claim that by written agreement dated 19 April 1993 (“the Agreement”) QFS appointed Joycourt Pty Ltd and Mr Bailey as its agents for the purpose of wholesaling forklift spare parts in South Australia. The agreement purported to contain a confidentiality clause protecting information which QFS had made available to QFS Forklift Spares.
On 11 April 1997, a provisional liquidator was appointed in respect of Joycourt. Following that appointment, demands were made by QFS on Mr Bailey for return of the confidential information which it had supplied. A similar demand was made to the provisional liquidator of Joycourt Pty Ltd who responded by saying that he was not in possession of the confidential information referred to.
The statement of claim alleged that at all material times Mr Bailey owed to QFS a fiduciary duty not to take advantage of his position as agent of QFS to obtain any benefit for himself or those associated with him to the detriment of QFS. It was alleged that Mr Bailey, in breach of clause 1 of the Agreement, published and disclosed the confidential information to Parts Masters which it had since used in purchasing and selling forklift spare parts for profit or gain and at prices which were confidential but which were listed as confidential information. It was also alleged that spare parts were sold using product codes which were contained in the confidential information, that Mr Bailey published and disclosed the confidential information to Parts Masters without the prior written consent of QFS, that the confidential information referred to remained the property of QFS, that as a consequence of Mr Bailey’s breaches of fiduciary duty QFS has suffered loss and damage, that at all material times Parts Masters knew of and participated in the breaches by Mr Bailey of the Agreement and the breaches of fiduciary duty owed by Mr Bailey to QFS.
The Mareva Injunction
On 20 June 1997 QFS obtained a mareva injunction against Mr Bailey and Parts Masters prohibiting them from dealing in any way with their assets “within the jurisdiction”. The order was made subject to the following qualifications:
(a)Mr Bailey was permitted to incur and pay ordinary living expenses for himself, his wife and his family. He was also permitted to pay properly incurred legal expenses, insurance, loan and mortgage payments, car lease payments, rates, taxes and other statutory charges properly payable in respect of his assets.
(b)Parts Masters was permitted to incur and pay all costs and expenses incurred in its ordinary course of business including the purchase and sale and supply of spare parts within the ordinary course of its business and pay any properly incurred legal expenses, insurance, loan and mortgage payments, lease payments, rates, taxes and other statutory charges properly payable in respect of its assets.
The mareva injunction was varied by me on 4 November 1998 in a number of respects, the principal changes being as follows:
Parts Masters was at liberty to sell all or any of its assets, whether or not in the ordinary course of its business, but was not permitted to enter into an agreement for sale not in the ordinary course of its business unless it had first provided appropriate notice of the impending sale and of its terms and conditions to QFS.
Parts Masters was permitted to pay from the net proceeds of sale costs and expenses incurred in the ordinary course of its business and all amounts properly due and payable by Parts Masters to Mr Bailey, Mrs Bailey or the Swan Reach Family Trust (a family trust associated with Mr and Mrs Bailey) provided such payments had first been consented to in writing by QFS or its solicitors or otherwise approved by the Court.
In the event that the net proceeds of sale of the assets of Parts Masters after deducting costs and expenses incurred in the ordinary course of its business exceed $10,000, Parts Masters is obliged to pay into Court the excess amount (unless such requirement is waived by QFS or its solicitors). The amount paid into court can only be paid out with the consent in writing of the plaintiff or its solicitors or as approved by the Court.
Mr Bailey was at liberty to sell his home at West Lakes provided he first gives notice to QFS of his intention to sell the property and of the proposed terms of the agreement. From the proceeds, Mr Bailey was permitted to pay off mortgages in favour of Bank of Melbourne Limited and Australia & New Zealand Banking Group Limited over the property.
Mr Bailey was also at liberty to sell a property situated at Regency Park provided he should first give appropriate notice of the intended sale and of the terms thereof. He was at liberty to apply any proceeds of sale to pay off the ANZ Bank mortgage.
In the event that the net proceeds of sale of the West Lakes property and the Regency Park property after deducting the amounts payable to the banks referred to exceed the $10,000, the excess amount must be paid into Court (unless such requirement is waived in writing by QFS or its solicitors).
Expert’s Report
The defendants contended that the signature of the defendant Mr Bailey on the confidentiality agreement was a forgery and indicated to a Master in the course of interlocutory proceedings that they would obtain an expert’s report to substantiate that fact.
On 10 December 1998, the learned Master made an order in the following terms:
"The defendants have 14 weeks to obtain and exchange their experts’ reports and the plaintiff has four weeks after that for any answering reports"
As at the date of hearing of these applications (16 June 1999), no expert’s report had been obtained.
On 18 March 1999, a further letter was sent by the plaintiff’s solicitors to the defendants’ solicitors endeavouring to ascertain whether an expert’s report had been or would be obtained.
On 22 March 1999, the plaintiff’s solicitors filed an application seeking an order that judgment be entered for the plaintiff against the defendants or in the alternative that the defence filed by the defendants be struck out.
This application came on for hearing before me in chambers on 16 June 1999. As there were a number of other matters considered on that occasion I reserved my decision on this matter along with the others.
In my opinion, the failure to obtain and furnish to an opponent an expert’s report does not justify either summary judgment or an order that that party’s pleadings by struck out. A party to an action does not have to obtain an expert’s report but if he does so, the report obtained must be exchanged within the time prescribed by the Rules of Court. If a party fails to comply with the requirements of R38.01 in relation to an expert’s report, the Court may exercise the powers contained in R38.02. These include a direction that the evidence of the expert concerned may not be adduced at the trial.
The position here is simply that the defendants have not obtained the expert’s report which they said they were to obtain. It is now too late for any expert’s report obtained by the defendants to be used in the course of the trial without the leave of the Court.
The application of the plaintiff in this matter dated 22 March 1999 is inappropriate in the circumstances and must be dismissed.
If at some future time the defendants were to obtain an expert’s report dealing with the handwriting on the confidentiality agreement, it would be a matter for the Court to decide whether leave should be granted to use such report at the trial. I would not at this stage indicate what attitude the Court should take in the matter.
Variation of Mareva Injunction
On 25 March 1999, the defendants made application to the Court in respect of various interlocutory matters. Included were applications for orders in the following terms:
"4..... That the sum of $20,000 be paid out of monies presently held in this Honourable Court to the second defendant pursuant to sub-paragraph 1.3B.2 of the orders made by The Honourable Justice Wicks on 4 November 1998.
5.In the alternative to the orders sought in paragraph 4 hereof, that the sum of $20,000 be paid out of the monies presently held in this Honourable Court to the second defendant pursuant to sub-paragraph 1.3C of the orders made by The Honourable Justice Wicks on 4 November 1998."
As appears from an affidavit of the first defendant sworn on 17 June 1999, the amount of $20,000 was required in part for the payment to the defendants’ solicitors for their legal fees and also for the payment of an expert opinion on the authenticity of Mr Bailey’s signature on the confidentiality agreement. Exhibited to the affidavit referred to were three accounts from the defendants’ solicitors covering the period 6 January 1999 to 10 June 1999 totalling $10,654.
Exhibited to the affidavit referred to was a letter from Mr Don Gangell dated 22 April 1999, a handwriting expert, in which he estimated that his fees in the matter would be between $5,500 and $8,000. There was also exhibited a letter from Quoin Technology in connection with the same task. This firm’s fees would appear to be substantially more than those quoted by Mr Gangell.
Mr and Mrs Bailey are joint proprietors of their home at West Lakes (“the West Lakes property”). Mr Bailey exhibited to an affidavit a rate notice from the City of Charles Sturt showing the property to have a capital value of $200,000. The plaintiff has produced a valuation that shows the property to be worth of the order of $245,000. It is subject to a mortgage in favour of the Bank of Melbourne Limited, the payout figure on which is approximately $200,000. It is also subject to a second mortgage in favour of the ANZ Banking Group Limited by way of collateral security for a loan of $70,000 used to purchase a property situated in Unit 7/36-38 Tikalara Street, Regency Park, being the property on which the business of Parts Masters was conducted. For rating purposes in the City of Port Adelaide-Enfield, the capital value of the Regency Park property is stated to be $70,000. The Regency Park property is owned by Mr and Mrs Bailey in their capacity as joint trustees of the Leeony Family Trust. This property is not held by Mr Bailey in his own right.
Before the Regency Park property was sold, Parts Masters Pty Ltd carried on its business on the property as an agent for the wholesaling of forklift spare parts in South Australia. Early in the year, the property and the business were sold, the net proceeds of sale being $43,442.11. It was conceded by counsel that the whole of this amount belongs to Parts Masters. There was no equity in the Regency Park property after payment out of the mortgages secured over it.
In my opinion half of any moneys payable to solicitors for legal expenses in connection with this present action and to cover the cost of an expert’s report should be treated as payable by Mr Bailey and half treated as payable by Parts Masters. I realise Mr Bailey and Parts Masters are jointly and severally liable for the payment of their solicitors’ costs. However, the question of apportionment of those costs is not a matter with which the solicitors are concerned. In making an order releasing funds, I would be concerned to ensure that the burden fell equally on Mr Bailey and Parts Masters. It would follow that I would release $10,000 from moneys held in the Suitors Fund to the credit of Parts Masters. The remaining $10,000 would have to be raised by Mr Bailey on the sale or mortgage of his house.
Plaintiff’s Proprietary Interest
There is a further difficulty in relation to moneys belonging to Parts Masters. These are moneys in which the plaintiff claims a proprietary interest arising from a constructive trust. It is within my power to release moneys in the suitors account of the Court from the operation of a mareva injunction. Any order I make in that regard can go no further than that. If a proprietary interest is asserted over the property concerned, there is nothing I can do to prevent such a claim. This difficulty arose in United Mizrahi Bank Limited v Doherty (1998) 2 All ER 230. In that case, in ordering that the defendants would not be in breach of a mareva order by utilising certain assets held by them to fund their reasonable legal costs, a proviso was added to the effect that nothing in the order should deprive the plaintiff of any proprietary claim it had to the assets in question. I propose to follow that case in the present matter.
Defendants cannot make application until their contempt is purged.
On 18 November 1998, on instructions from the defendants, their solicitors, Messrs Andersons forwarded to the plaintiff’s solicitors a copy of a letter from Lee Chew & Co Pty Ltd to Andersons dated 16 November 1998. The letter listed various loans and other payments made to Parts Masters by Mr Bailey, Mrs Bailey, the estate of Mrs Bailey’s late mother and the Swan Reach Family Trust. The payments in question covered a period from 13 March 1997 to 7 November 1998. The payments were from Mr Bailey - $3,500; Mrs Bailey - $6,000; the estate of Mrs Bailey’s deceased mother $27,000 and the Swan Reach Family Trust - $28,300.75. The aggregate of these amounts was $64,800.75. Also, the letter from Lee Chew & Co Pty Ltd disclosed a number of payments from Parts Masters to one or more of Mr and Mrs Bailey and the Swan Reach Family Trust. The payments made by Parts Masters were as follows:
| Date of Payment | Details of Payment | Amount |
| Issued Capital | $2.00 | |
| 7.5.97 | AGC Fund Repayment by Cheque No 400017 | 1,299.00 |
| 31.5.97 | Cash sales not banked | 846.80 |
| 25.6.97 | Fund repayment by cheque No 400068 | 530.00 |
| 30.6.97 | Payment of Master Card by cheque No 400074 | 1,366.26 |
| 30.6.97 | Cash sales not banked | 1,392.60 |
| 24.7.97 | Fund repayment by cheque No 40092 | 530.00 ________ |
| Total repaid | $5,966.66 |
The plaintiff contends that these payments amounted to a breach of the mareva injunction to which I have earlier referred. It is argued that such a breach, if proved, would amount to a contempt of court. Nevertheless, I am inclined to think that this matter should be looked at globally. If that is done, Mr Bailey and Parts Masters have between them received very much more than either of them has paid.
It may be that Mr Bailey has omitted to include reference to the payments totalling $5,966.66 in his affidavit under cl 1.4 of the mareva injunction. However, in view of the very large contributions to Parts Masters which Mrs Bailey and her mother’s estate have made over the period to which I have earlier referred, I would regard the breach concerned as trivial.
There is a rule that a party in contempt cannot make an application in the same court until he has purged his contempt: Mane Market Pty Ltd & Ors v Temple, Debelle J, 27 November 1998 (unreported) judgment No S6986, Hadkinson v Hadkinson (1952) P 285 and Short v Short (1973) 7 SASR 1. In Short v Short, Bray CJ said at p 11:
"The rule [that a party in contempt will not be heard in any application in the same cause as that in which the contempt occurred until he has purged his contempt] however, has been relaxed. It has been restricted to the same proceedings in which the contempt occurs. The court has a discretion to hear a party in contempt, ... "
In the case before me I propose to exercise my discretion to hear the defendants’ application dated 25 March 1999 for the payment out of court despite the contempt which the plaintiff alleges.
Recourse to other funds
It was submitted by counsel for the plaintiff that the defendants had not established that they could not have recourse to other funds: Macks v Ekena Pty Ltd & Anor, Mansfield J, 22 June 1998 (unreported) and Macks v Ekena Pty Ltd , von Doussa J, 13 July 1998 (unreported). The mareva injunction refers to all the assets of the defendants within the jurisdiction. The plaintiff’s counsel argued that there was equity in the West Lakes property in excess of $45,000. It was argued that there was evidence before the Court that Mr Bailey could have recourse to other assets with which to fund the litigation, namely the West Lakes property. However, such a submission overlooks the fact that the West Lakes property is itself property subject to the mareva injunction. In having recourse to that property, it could not be regarded as “other funds”. It may be inappropriate for the West Lakes property to be used to fund Parts Masters in the litigation. It may be inappropriate for the moneys in the suitors account in the name of Parts Masters to be used to fund Mr Bailey in this litigation. There is no suggestion that either defendant holds any assets outside the jurisdiction.
In relation to the question of recourse to assets of parties interested in the litigation, counsel for the plaintiff submitted that in considering the issue of whether the defendants could have recourse to other assets from which to fund their defence, the Court should not limit its consideration to the assets legally available to the defendants; but also to those persons who have an interest in the outcome of the litigation. Reference was made to Atlas Maritime Co SA v Avalon Maritime Limited (No 3) (1991) 4 All ER 783. That was a case where the defendants’ business and financial affairs were completely controlled by its parent company. In those circumstances, the parent company clearly had an interest in the outcome of the litigation. According to the reasons for judgment of the members of the Court of Appeal in that case, the situation may have been different if the defendant, while a subsidiary of another, exercised a real degree of independence in relation to its affairs.
In the present case, the only persons to consider in relation to the possibility of an interest in this litigation are Mr and Mrs Bailey as trustees of the Leeony Family Trust. However, I cannot see how they could be interested in this litigation in their capacities as trustees on that trust. In equity, they have a clear responsibility to the beneficiaries or discretionary objects of the trust. There is no reason to believe that in their capacity as trustees of the trust they have a responsibility of any kind to consider the interests of the plaintiff. The fact that the trustees may have lent money to Mr Bailey or to Parts Masters in connection with this litigation does not, in my view, make the trustees parties interested in the litigation.
In the circumstances I propose to make an order permitting the release of $10,000 from the funds of Parts Masters held in the suitors fund of this Court. In doing so, I reiterate what I have said earlier that I am not in a position to express any view on the proprietary claim made by the plaintiff in respect of the funds held in the suitors account. All I can do is to release the funds in question from the restraint imposed by the mareva injunction.
I am prepared to release an additional $10,000 from the assets of Mr Bailey. Alternatively, I am prepared to authorise him to borrow a further $10,000 on the security of a mortgage over his house. If the house property is to be dealt with, Mrs Bailey should be advised separately and independently. Any funds released or borrowed would have to be applied for the purposes I have indicated.
I will hear counsel on the form the order should take.
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